WSR 23-07-077

PROPOSED RULES

OFFICE OF THE

INSURANCE COMMISSIONER

[Filed March 14, 2023, 8:50 a.m.]

Original Notice.

Preproposal statement of inquiry was filed as WSR 22-04-091.

Title of Rule and Other Identifying Information: Premium change transparency.

Hearing Location(s): On April 25, 2023, at 9:00 a.m., hybrid public hearing. In person at 5000 Capitol Boulevard S.E., Conference/Training Room #120, Tumwater, WA 98501; or virtual attendance by Zoom. Detailed information for attending the Zoom meeting posted on the office of the insurance commissioner (OIC) website https://www.insurance.wa.gov/premium-change-transparency-r-2022-01. Written comments are due to OIC by close of business (5 p.m. PST) on April 28, 2023. Written comments can be emailed to RulesCoordinator@oic.wa.gov.

Date of Intended Adoption: May 2, 2023.

Submit Written Comments to: Michael Walker, Senior Policy Analyst, 302 Sid Snyder [Avenue S.W.], P.O. Box 40255, Olympia, WA 98504-0255, fax 360-586-3109, RulesCoordinator@oic.wa.gov, by close of business (5 p.m. PST) on April 28, 2023.

Assistance for Persons with Disabilities: Contact Katie Bennett, phone 360-725-7013, fax 360-586-2023, TTY 360-586-0241, email Katie.Bennett@oic.wa.gov, by April 24, 2023.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: OIC is proposing rule making to achieve transparency for insureds receiving premium increases from insurers at renewal. This rule achieves transparency by defining the scope of insurer responsibility to explain the specific rate and rating factors that cause premiums to increase for consumers at renewal. This rule will require insurers to provide premium change transparency to their policyholders for factors evaluated and associated with increased premiums at renewal. The rule will afford insurance consumers additional protections in the form of financial transparency and fairness in insurance transactions at renewal, as well as the ability to make educated and informed decisions on purchasing or renewing policies, administering coverages, improving insurability, and managing insurance costs.

Reasons Supporting Proposal: Consumer complaints and industry responses provided to OIC demonstrate a need for insurers to provide transparency to policyholders for premium increases occurring at renewal. Insurers have limited disclosure duties at the time of renewal under the insurance code. Currently, insurers are under no legal obligation to disclose and explain the specific rate and rating factors used to determine premium increases. Neither the renewal notices, nor adverse action notices, required of insurers under current law operate to sufficiently disclose the totality of financial factors or underwriting decisions associated with premium increases in adequate detail for consumers.

The current renewal and adverse action notices do not effectively provide consumers with transparency in these transactions. This prevents policyholders from making educated and informed decisions on their insurance at renewal. This also leaves insurance consumers uninformed, not only on the factors considered by their insurers in underwriting and at renewal that can result in financial impacts, but also as to how the consumer can mitigate their insurance risks or costs. Requiring insurers to provide premium change transparency to their insurance consumers, disclosing the increases in a consumer's insurance costs at renewal and the reasons causing increased policyholder premiums, will promote honesty and fairness in these insurance transactions, and upholds the public interest in the business of insurance.

Statutory Authority for Adoption: RCW 48.02.060 for OIC's general rule-making authority to implement RCW 48.01.030, 48.18.180, 48.18.2901, 48.18.292, 48.18.480, 48.18.545, 48.19.020, 48.19.035, and 48.30.010.

Rule is not necessitated by federal law, federal or state court decision.

Agency Comments or Recommendations, if any, as to Statutory Language, Implementation, Enforcement, and Fiscal Matters: None.

Name of Proponent: OIC, governmental.

Name of Agency Personnel Responsible for Drafting: Michael Walker, P.O. Box 40255, Olympia, WA 98504-0255, 360-725-7036; Implementation: Molly Nollette, P.O. Box 40255, Olympia, WA 98504-0255, 360-725-7117; and Enforcement: Charles Malone, P.O. Box 40255, Olympia, WA 98504-0255, 360-725-7050.

A school district fiscal impact statement is not required under RCW 28A.305.135.

A cost-benefit analysis is required under RCW 34.05.328. A preliminary cost-benefit analysis may be obtained by contacting Rules Coordinator, P.O. Box 40255, Olympia, WA 98504-0255, phone 360-725-7171, fax 360-586-3109, email RulesCoordinator@oic.wa.gov, www.insurance.wa.gov.

This rule proposal, or portions of the proposal, is exempt from requirements of the Regulatory Fairness Act because the proposal:

Is exempt under RCW 19.85.025(4).

Explanation of exemptions: RCW 19.85.025(4), The businesses that must comply with the proposed rule are not small businesses, under chapter 19.85 RCW. OIC has found that none of the existing insurance companies may be considered small businesses under RCW 19.85.020(3).

OIC determined that property and casualty insurance companies are impacted by the implementation of this rule. Based on 2019 Bureau of Labor Statistics (BLS) data, direct property and casualty insurers are not considered small businesses, as they have on average 74 employees per firm (6,393 total employees in Washington, 87 average number of firms in Washington). Small business is defined as a business entity, including a sole proprietorship, corporation, partnership, or other legal entity, that is owned and operated independently from all other businesses, and that has 50 or fewer employees (RCW 19.85.020). To verify that the impacted insurers are not small businesses, a question within the industry survey administered by OIC to evaluate the impacts of this rule making asked whether the insurer had 50 employees or fewer or more than 50 employees. All respondents except for three (12 respondents out of 15) indicated they had more than 50 employees. The three respondents that indicated they are small businesses were all a part of the same insurer group (and submissions were provided by the same contact). Despite the response that these are small businesses, they cannot be viewed as distinct entities under the definition of a "small business" considering they are not owned and operated independently from all other businesses. Upon reviewing the insurer group's 2022 financial report, OIC discovered that the total number of employees exceed 30,000 across the entire insurer group. The BLS data, in conjunction with the survey results and further research into insurer groups' financial reports indicate that these entities cannot be considered small businesses under the definition provided in RCW 19.85.020(3).

Scope of exemption for rule proposal:

Is partially exempt:

Explanation of partial exemptions: The rule scope applies solely to insurers who will not meet the definition of small business in RCW 19.85.020(3). However, insurance producers can anticipate an associated impact from the premium change transparency required by the rule, as producers are likely to be contacted by their consumers to discuss their consumer protection rights or the new rule generally. Insurance producers can also meet the definition of small business under RCW 19.85.020(3). The rule will not impose more-than-minor costs on insurance producers.

The proposed rule does not impose more-than-minor costs on businesses. Following is a summary of the agency's analysis showing how costs were calculated. RCW 19.85.0301 (1)(a), The proposed rule will not impose more-than-minor costs on businesses in an industry. The proposed rule will not impose more-than-minor costs on insurance producers.

Insurance producers will be impacted by an expected increase in consumer contacts and call volume regarding the premium change transparency. RCW 19.85.030 (1)(a) states that "… an agency shall prepare a small business economic impact state [statement]: (i) If the proposed rule will impose more than minor costs on businesses in an industry …." OIC determined that this rule would not impose more-than-minor costs on insurance producer businesses.

From the industry survey, 64 percent of property and casualty insurers that responded estimated that producers would have costs resulting from direct impacts of the proposed rule. Respondents indicated that these costs would likely stem from increased call volume. Based on the survey data, OIC estimates that each insurance agency can expect to respond to 60 policyholders for 30 minutes each concerning the premium change transparency. This equates to 30 hours per agency answering questions resulting from the proposed rule making. Using 2019 BLS data, the average weekly pay for individuals employed by insurance agencies and brokerages in Washington is $1,626. Assuming a 40-hour work week, that equals approximately $40.65 per hour. Therefore, the cost of compliance for producers is estimated to be $1,219.50.

(60 policyholders * 0.5 hours) * ($1,626 average weekly pay / 40-hour work week) = $1,219.50

This cost of compliance is used to determine whether the cost imposed on producers by this rule is below or exceeds the minor cost threshold. The chart below shows the estimated cost of compliance (calculated above), as well as the minor cost estimate, which is the larger of either one percent of the average annual payroll or 0.3 percent of the average annual gross business income. When the cost of compliance is estimated to be $1,219.50, it is well under the minor cost estimate of $5,432.13.

The cost estimate above assumes 60 policyholders will require 30 minutes each to discuss consumer questions concerning the premium change transparency. If each agency were to respond to 250 policyholders for 30 minutes each, well above the anticipated numbers provided in the industry survey, the associated costs would equal $5,081.25 per producer business, still below the minor cost estimate.

The proposed rule requires insurers to provide the premium change transparency to policyholders upon written request by the policyholder for any premium increase occurring at renewal starting on June 1, 2024. Beginning on June 1, 2027, insurers will be required to provide premium change notices to policyholders upon a 10 percent premium increase occurring at renewal, or upon request. The cost of compliance for producers outlined above is for the second phase of the rule, where insurers must provide the notices upon a 10 percent premium increase or upon request. This phase is expected to result in higher costs for producers, as a higher number of consumers who receive the notices are likely to reach out for additional information. Producer costs associated with phase one of this rule are expected to be lower than the estimates provided and, therefore, still beneath the minor cost estimate.

The estimated cost of compliance is below the minor cost threshold. The figures used for this calculation are drawn from relevant data from BLS, the Washington employment security department, and the Washington department of revenue.

March 14, 2023

Mike Kreidler

Insurance Commissioner

OTS-4002.7

Chapter 284-30A WAC